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Dow Corning has been pioneer in the development of silicones for commercial uses for the
last 80 years, founded as a joint venture between Dow Chemical Company and Corning
Glass. They became a global leader in manufacturers of silicon-based products with a 40%
worldwide market share. Dow Corning was a pioneer producing fit for purpose market
leading products.
Around late 1990 Dow Corning encountered major performance and financial losses as
customers were defecting to low-priced suppliers which eroded Dow Corning’s volumes and
margins. In 2001 after another dismal year and Dow corning not living up to its capabilities
and layoffs proving to be inadequate, a fresh start was required. After numerous strategic
deliberations Dow Corning decided on a dual brand strategy going forward, resulting in a
new business unit Xiameter being formed. Xiameter business mode quickly delivered on its
promise in following ways:
PESTEL
Political: Since the company has a pan world presence, the political condition is very
important for their growth. They should keep a close eye on the political powers in each
country which governs the laws such as f taxes and Intellectual property.
Economic: None
Social: The product was becoming commoditized. Many new players were entering the
market and undercutting the price set by the company. This is s social factor because the
company was the market leader and the price setter. The dynamics were changing very
quickly.
Environmental: None
Legal: None
SWOT
Strengths
They were the market leaders of Poly-Silicon Market.
They have achieved the economies of scale.
They were present in all the major markets of the world.
They had an extensive product portfolio, coupled with the ability to partner with the
clients to customize their requirements.
They had invested a lot of money on R&D which gave them the advantage of making
more innovative products.
They had a customer support/ Technical support for their clients (Except Xiameter).
Weaknesses
They were following the same business plan for more than 60 years.
The internal management was not able to figure out that a significant change was
required to revive the financial health of the company.
They were stagnant for last 5 years in terms of growth.
Opportunities
Device a mechanism through which the Price seekers could be dealt with. They just
required timely delivery and the lowest prices.
Offer ore variety of products as a result of more collaborations and then generalizing
the product for other players.
Threats
Small companies with no R&D, customizations and expertise were selling the silicon
to the bulk buyers at dirt cheap prices.
Rivals and other major players were undercutting the price of the Dow Cornings.
Commoditization of the product.
They were not reacting proactively to the changing market scenario.
Customers demanding lower prices.
There was a huge amount of competition for the Xiameter. The competition consisted of the
following:
Dow Corning developed to turn into a worldwide pioneer in silicone-based items with 40%
overall piece of the pie in 2006. The organization's nearest rival, GE Silicones, had a
worldwide piece of the overall industry of 25%. Almost 60% of the organization's $3.87
billion deals in 2005 originated from outside the US.
Moreover this, a major contributor to declining performance was a growing defection of
customers to low-price suppliers.
Large global and regional rivals were boosting the efficiency of their supply chains and
exploiting the resulting economies to undercut Dow Corning’s prices.
Similarly, smaller local players with no R&D investment and low overhead were offering a
range of commodity silicone products to bulk customers at rock-bottom prices thus eroding
Dow Corning’s volumes and margins even further
Bargaining power of supplier: It was drastically reducing as the product was getting
commoditized and there was a majority of price seekers who wanted timely delivery and
lowest prices. MEDIUM
Bargaining power of Buyers: The Company was also facing a crisis here as the buyers were
getting more powerful because of small local players and large players who were
undercutting the prices set by the market leader. They were not providing any technical
assistance and the quality of their product was also inferior. HIGH
Threat to new entrants: Small players with no R&D were surfacing and delivering goods at
rock bottom prices. Not only this, they were undercutting the price of the product. Cheap
imitations of the product flooded the market. HIGH
Rivalry among the existing competition: There was a high degree of rivalry among the
existing players in the market which consisted of all the small and big time players. They
were all fighting for the market share. Dow Corning grew to become a global leader in
silicone-based products with 40% worldwide market share in 2006. The company’s closest
rival, GE Silicones, had a global market share of 25%. HIGH
Threat of substitute: The threat of substitute was low as the product was used across many
diversified industries and was in high demand. The market for the product was growing at a
good rate. LOW
Customer Analysis
Customers are distributed through 6 concentrated industries in more than 80 countries
worldwide. They supplied to 25,000 consumers with over 7,500 goods. Customer paid
premium prices for the innovative high-quality product which included value-added services
such as custom application testing, personalized packaging training and recycling.
The customer research led to the insight that the last segment did not value the
supplementary services that Dow Corning offered. However, since the supplementary
services were bundled with the products and those cost had to be recovered, the naked
solution was too expensive for the last segment. Understandably, this segment refused to
pay for the services it did not value and pressured for lower prices. But lowering prices for
this segment without changing the fundamental market offer was problematic because then
the customers from the other three segments, which truly valued the supplementary
services, would also demand the same lower prices. The need for tailored market offerings
was obvious.
The company was especially missing out on a segment of the silicone market consisting of
customers who bought big volumes at highly competitive prices, and who did not need Dow
Corning’s services as part of the total package. So here we can see that one of the POD of
Dow Corning is not considered to be a POD by customer.
XIAMETER’S PoDs
Lower price
The goodwill from Dow Corning
Leader in the Lead times
Innovative product and service solutions
Resonating Focus Value Proposition has to be different for different customer segment
1. Customers seeking to innovate:
Innovative product
Fulfilling unmet needs
Providing products as per emerging latest trends
The launch of Xiameter was based on the idea of competing on the large volume cheaper
products seller negotiating on the after sales service. What Xiameter did was to provide
cheaper products than Dow Corning(15% cheaper) almost eradicating the after sales
services on the silicone products which they used to offer in the premium segment thus
adopting a dual brand strategy.
Don Sheets senses that the Xiameter business model is a "fair deal," no service for low
prices, and laws that penalize both the customer and Xiameter for breaches.
Let us compare the two different brands and learn their characteristics:
Xiameter
• Business Model governed by rules
• Negligible services, lower pricing
• Process steps are automated (pricing, information, etc)
• Web based application
• Back-end SAP support
Dow Corning
• Fax/Telephonic orders
• Information is processed based on request
• Manual process tasks
• SAP system
Orders are exclusively available via the Website Xiameter.com, which only provides
maintenance fees in English. Customers confronted Xiameter with the creation of versions
in their mother tongue, which Xiameter declined unless the customer was prepared to bear
the maintenance costs. Actually less than 10% (or less) of Xiameter's customers have to pay
an extra charge of $250 per order via phone / fax / email. The Xiameter workers manually
enter telephone / fax / email orders in the Xiameter ordering app. Only rational and
effective shipping units such as pallets, camion or tankers can place orders depending on
the product.
Once the company places the order, the customer produces and sends three automatic
emails: a confirmation of the order (within 15 minutes from order receipt), a notification to
be delivered (when the equipment leaves the plant; the date of shipment is assured or
Xiameter charges 3 percent of discount on next-order order); and an invoice (with MSDS,
report certificates, etc.).
The prices are good for orders shipped for customers from 7-90 days to their country.
Express orders (e.g. delivery within less than 7 days) require a check on availability and a
10% surcharge as most goods have to be ordered. Although dynamic pricing is available
(based on market conditions and production capacity), most customers prefer prices based
on a negotiated agreement for a certain time period, because prices so set permit a better
planning of production and sales. The minimum order volume is $50,000/year to discourage
quality transactions.
Dow Corning, which maintains production facilities worldwide, sells products of Xiameter–
products of Xiameter come from one production site for a specific geographical area. The
date of delivery is based on full refill (i.e. time of the total production plant period). The
efficiency of the plant plays a part in the price of goods, but not the main driver. Shipments
are made directly to the customer from the plants to avoid the cost of storage. The 3% late
credit is billed to the cost centre of the sourcing plant. This allows Xiameter to keep track.
To handle shipments of goods, Xiameter hires UTI, the third party logistic firm of Dow
Corning. While Xiameter pays for the date of delivery of a product, it does not guarantee the
day of delivery at the location of the customer. The date of delivery of the drug is not
assured.
SYSTEMS: Xiameter uses the robust SAP R/3 infrastructure of Dow Corning and the
application channel management software HAHT (www.haht.com). Although Xiameter
considered using SAP's customer interface, the overall functionality was weak while its "drag
and connect" feature is interesting. Xiameter analyzed a range of storage packages and
HAHT was selected as the cheapest and simplest to implement, and was the only company
able to meet the six-month Xiameter implementation timeline. HAHT is now used for
potential client interfaces in the Dow Corning account management community and norm.
Xiameter has sustained low prices and cost through broad average order size, streamlined
processes and minimal customer touch. Xiameter believes that silicone will increase the
overall silicone demand with considerable cost savings by offering an alternative to organic
chemicals to the $100 billion performance improvement materials industry? No direct
competitor to Xiameter is currently available. Lanham said companies (e.g. Elemica, with a
full range of supply chain services (marketing, planning, optimization, seller-managed and
controlled inventory), Chemplorer, which provides a mix of access (technology), catalogs
(content) and negotiation and services, are seeking to provide low prices and a wide variety
of service techniques. Xiameter can not find out how the mix will operate as vendors are
trying to offer low prices and technical services and it will be difficult to realize value.
While the ordering process is the same at Dow Corning, Xiameter has "forced" the use of
SAP business process flows, i.e. no function, etc. SAP entered a products issue transaction to
notify the ERP program that distribution was completed (i.e. product left the production
facility Dow Corning and was in the hand of the supplier). A "goods issue transaction" The
transactions of "goods issue" should be held in SAP on shipping day. Nevertheless, Xiameter
noticed that operators did not regularly send a late shipping notice to the customer with the
automatic result (by e-mail), resulting in a late shipping charge to the customer.
Customer perspective:
• The prices were 15% lower compared to Dow Corning
• The electronical supply of documents were tracked and traced
• Two brands were available at a time – possibility of switching to anyone
as per requirement
Xiameter perspective:
• Realized through a performance package for product customers
• Completion of an online business model
• Realized by the deterioration and standardization of the technical service
• Automation shortened cycle times
• Process Knowledge
• The opportunity to open new consumer groups by increasing silicone
prices